Saturday, 17 August 2013

The US equity indexes slipped lower for the second consecutive week, with most indexes falling between 1.6% and 2.3%. The trend into September looks weak, with a primary downside target zone for the sp'500 of 1575/50.

Lets take a look at six of the main US indexes...

sp'500

The sp' slipped 35pts (2.1%) this week, and even managed a weekly close under the important 10MA. This is a very good bearish sign, and the door is now open to the weekly lower bollinger of 1545 - although that target is rising each and every day.

Bulls are clearly in trouble, with all indicators now in favour of the bears. Not least the MACD (blue bar histogram) cycle which is now negative, and has put in a perfect smaller tower-block.

Nasdaq Comp

The Nasdaq was no doubt propped up by a very strong AAPL, but still saw weekly declines of 1.6%. Bears should be seeking a weekly close under the 10MA <3550 next week. That looks very likely, with the MACD cycle continuing to tick lower, and set to go negative cycle in 2 weeks.

Dow

The mighty Dow fell 2.2%, and is in imminent danger of losing the 15k level next week. Everything is looking bearish, with downside to 14500/250 by mid-September. Despite the renewed weakness, Dow <14k does not look viable any time soon.

NYSE Comp

The master index has indeed failed to break the big 10k psy' level in the recent up wave, and we're now clearly on a new multi-week down cycle. Primary downside target is the 9000 level, that is about 5% or so lower. MACD cycle is now negative, and things look fairly bearish into September.

R2K

The second market leader - Rus'2000 small cap, fell a significant 2.3%, and looks set for considerably lower levels across the next four trading weeks. Primary downside target zone is 950/925. However, It does not look viable for the R2K to break <900 in the near term.

Transports

The tranny slipped for a second week, falling 1.6%. There is rising support in the 6200s, but that looks unlikely to hold. Primary downside target is the 6000/5800 zone. Underlying MACD cycle is now negative, and looks set to remain weak for at least another 3-4 weeks.

Summary

A second week for the bears, with equities looking rather bearish into September. Certainly, I am not calling for anything 'crashy' in the near term. However, a move back to the June lows in the 1575/50 zone would give the mainstream something to think about.

Very few are forecasting the market to close the year >1800, and thus some are asking the obvious question 'why not sell now, and buy back later?'

As for QE and the Fed taper, who knows what the printing maniacs will decide. If the market does fall into mid-Sept - with the FOMC @ Sept'18, would the Fed want to risk further equity decline below key support of sp'1560 ? I don't think so.

However, I am starting to believe even if the Fed does cut QE by 15/25bn, the market will still rally, as the 'news has been priced in'. Bears really need to be careful at the next Fed meeting. Personally, if we're trading in the 1575/50 zone prior to the next FOMC, I'll be positioned...long. A bounce of 75/100pts looks a given..regardless of the decision.

Mid-term doom?

With the break <1675, many are now starting to call sp'1709 a mid-term top. The following chart is the most bearish outlook I can come up with. I'm certainly not the only one suggesting something like this, but as ever..its just one of a number of scenarios.

sp'weekly'9d - H/S autumnal declines

Its a pretty exciting scenario. A moderate drop back to the June levels, then a post FOMC 'relief' bounce but then a RS/lower high. From there, the market rolls over, and if the June low of 1560 is taken out, then in theory, it should just keep going to the low 1400s.

First things first though, bears need a hit of the (still rising) lower weekly bollinger, currently @ 1545, but by mid-Sept', it will be around 1575 - which is where the 200 day MA will also be lurking.

Looking ahead

There isn't much of anything due next week. Absolutely nothing on Mon/Tuesday. Wednesday does have the Fed minutes (2pm) and home sales data. Thursday has leading indicators/home data. Friday has new home sales data.

*the only significant QE-pomo next week is next Friday, $3bn.

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The bears managed to keep the market under control into the Friday close, with the sp' declining by 35pts (2.1%) across the week. 1709 would appear to be a confirmed near term top, with a downside target of the 1575/50s this September.

sp'weekly9 - general outlook, with fibs

Summary

So, the bears actually managed to control the market for a second week. Even so, the VIX is still at a very low level, and the trading volume/activity remains very low, but then..it is 'sleepy August'.

In theory, this Blue IV' wave should be a little more powerful than the recent sub'4 wave (of May/June). Yet, at best, bears will surely get stuck around the mid 1500s.

With the rising 200 day MA - set to be in the 1570s in mid-September, the bears are going to find it really tough to go much lower than that.

A note on yields

In the scheme of things, bond yields/interest rates remain bizarrely (and stupidly) low, and I do find it laughable how many in the mainstream are getting twitchy about the 'big 3%'.

10yr, monthly'2

On any basis, we have a clear technical breakout above the important 2.75 level, and we look set to battle higher. Target is somewhere in the 3.25/50 zone.

Unlike many doomer bears out there, I don't believe yields in the 3s..or even 4s are going to 'wreck the recovery'...not that I believe there is a 'real' recovery going on anyway.

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**Coming in spring 2014....BEARS, although I don't think it includes anything related to the equity doomer bears...

The main indexes generally closed moderately lower, with the sp -5pts @ 1655. The old leader - Transports, was the anomaly, with gains of 0.6%. Near term trend remains weak, but the bulls should be able to manage a bounce back into the sp'1680s next week.

sp'daily5

R2K

Trans

Summary

A rather quiet end to the week, considering it was opex.

Arguably, the most notable aspect was the slight strength seen in the transports.
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On balance, a 2-3 day bounce seems very likely next week, back into the sp'1680s. From there, renewed downside, with a primary target zone of sp'1575/50 by mid September. A break back into the sp'1700s now seems VERY unlikely until at least late Oct

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